Best Practice: Using RULES to improve profitability and cash flow

Asked and Answered By John W. Olmstead, MBA, Ph.D, CMC Using RULES to Improve Profitability and Cash Flow Q. Our seven attorney firm is struggling with poor profitability and cash flow issues as well. How have other small firms fared during the past year? What should we focus on? A. In general – small firms have fared pretty well during the recession. Some actually had best year ever. Many experienced flat or 10% revenue declines in 2009. Small firms that had biggest problems were those that had issues before the recession. Successful firms play by the RULES to improve profitability, make more money & improve cash flow. Here is the general idea. R = Rate & Realization U = Utilization L = Leverage E = Expense Control S = Speed Realization Rate The percentage of your time that turns into cash over a specific time period

• Time Write Downs
• Accounts Receivable Write-offs

Utilization Rate The amount of billable time / amount of available time Utilization Affected By

• Lack of work
• Poor timekeeping habits
• Track Marketing Time – It’s An Investment In Your Future

Leverage Direct cost relative to production capability

• Associates
• Paralegals
• Secretarial billable time
• Practice Systems

Expense Control

• Control – Don’t Cut
• Increasing Revenue while maintaining the same cost structure is a powerful approach
• You can’t succeed by working more hours with decreasing levels of support

Speed Speed is about getting bills out quickly and paid quickly

• Use engagement agreements
• New matter memo forms
• Effective client intake procedures
• Enforce time entry and draft bill deadlines
• Follow-up on any bill unpaid after 30 days

Use RULES as a guide to focus on each of the economic levers that are involved in firm profitability. Often attention is needed in each of the five areas. Each need to be managed. John W. Olmstead, MBA, Ph.D, CMC, is a past chair and member of the ISBA Standing Committee on Law Office Management and Economics. For more information on law office management please direct questions to the ISBA listserver, which John and other committee members review, or view archived copies of The Bottom Line Newsletters. Contact John at jolmstead@olmsteadassoc.com.